China’s steel mills feel slower profit growth in Q3

5-Nov-2018

The growth in Chinese steelmakers’ profits decelerated in the third quarter of 2018 even though that for the first nine months surpassed the average level of the country’s industrial sector, mainly as steelmaking raw material prices including iron ore, coke, scrap and ferroalloys caught up in speed, market sources agreed.

Profits in the ferrous industrial sector comprising iron and steelmaking and rolling grew 71.1% on year over January-September, far beyond the 14.7% annual growth for the country’s all industrial sectors, according to the latest release by the National Bureau of Statistics (NBS) on October 27, but it was much lower the 110% year-on-year growth for H1, Mysteel understands from the NBS data.

The profits among the over 100 member steel mills of the China Iron & Steel Association (CISA) increased 86% on year over January-September, with their profitability still levelling the whole industrial sector, according to CISA’s latest report released on October 31, but it was also far below their 151.2% annual growth for H1.

CISA pointed out that performance of steel industry in September didn’t meet the anticipation because the general profit margins in the month even was in decline from August squeezed by higher costs. An official from a privately-owned steel producer in North-China’s Hebei province echoed the understanding, grumbling “our profits in Q3 seem pretty good but it shrank from Q2 in reality because raw material price increased faster than the finished steel prices.”

Mysteel’s survey on the molten iron cost among the 91 blast furnace mills across China posted a 5% rise quarter on quarter, among which, the 62% Australian iron ore fines price index rose 7.2% on quarter, and coke price index hit a 10-year high of Yuan 2,562/tonne as of September 13 or up 6.4% on quarter as of September 30.

China’s domestic finished steel prices, at the same time, were not able to grow as rapidly as raw materials except for rebar whose price enjoyed a 9% quarter-on-quarter growth, as flat steel such as hot-rolled coils and medium plate saw their prices even fell quarter on quarter, Mysteel’s data showed.

Moreover, to meet the higher national standard for rebar that will be effective on November 1, Chinese steel mills especially those long steel producers have been propelled to add more ferroalloys such as ferro-vanadium and manganese alloys in their production, market sources said.

“More ferro-vanadium feeds add another Yuan 200-300/t into their rebar production cost even though the absolute volume is rather minor compared with iron ore or coke,” a Shanghai-based market analyst shared.

In the past few months, Chinese steelmakers has been pouring more funds into environmental protection efforts partly amid the frequent inspections and emergency curbing, and Beijing’s emphasis recently on differentiating curbing measures among individual steel mills depending on their waste emission and the efficiency of their eco-friendly facilities.

“This is a huge financial burden on steel mills especially those that are already tight in cash flow and hard to secure more bank loans, forcing them to source financing but at higher costs,” a market source from Tangshan, North China’s Hebei province, said.

For the time being, though, higher cost in raw materials has shown no signs of discouraging steel mills from maintaining their high steel output as the margin at present has appeared rather attractive than last year.

Mysteel’s rebar monthly profit survey among 91 blast-furnace mills across China showed that the margin for September averaged Yuan 941/t, up by Yuan 173/t on year but down Yuan 59/t from August.

Source: MYSTEEL